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INCOME TAXES
 12 Months Ended
Dec. 31, 2016
Income Tax Disclosure [Abstract]  
INCOME TAXES
NOTE 7. INCOME TAXES

 

For tax periods ending before August 31, 2012, IOT was part of the American Realty Investors, Inc. consolidated federal return. After that date, IOT and the rest of the American Realty Investors, Inc. (ARL) group joined the May Realty Holdings, Inc. (MRHI) consolidated group for tax purposes. The income tax expense for the first part of the 2012 tax period was calculated under a tax sharing and compensating agreement between ARL, TCI and IOT. That agreement continued until August 31, 2012 at which time a new tax sharing and compensating agreement was entered into by ARL, TCI, IOT and MRHI for the remainder of 2012 and subsequent years. For 2016, MRHI, ARL, TCI and IOT had combined net taxable income and IOT recorded a current tax expense of approximately $1.1 million. The expense is calculated based on the amount of losses absorbed by taxable income multiplied by the statutory rate of 35% per the tax sharing and compensating agreements.

 

Current income tax expense is attributable to (dollars in thousands):

 

    2016     2015     2014  
                   
Income from continuing operations before tax   $ 3,202     $ 2,306     $ 2,505  

 

The following table presents the principal reasons for the differences between the Company’s effective tax rate and the United States statutory income tax rate of 35% (dollars in thousands):

 

    2016     2015     2014  
                   
Federal income tax at statutory rate   $ 1,121     $ 807     $ 877  
Gain on sale differences     —       1,324       —  
Other     115       —       —  
Effective income tax rate     35 %     35 %     35 %

 

Deferred income taxes reflect the tax effects of temporary timing differences between carrying amounts of assets and liabilities reflected on the financial statements and the amounts used for income tax purposes. IOT’s tax basis in its net assets differs from the amount at which its net assets are reported for financial statement purposes, principally due to the accounting for gains and losses on property sales, and depreciation on owned properties. The tax effects of temporary differences and net operating loss carry forwards that give rise to the deferred tax assets are presented below (dollars in thousands):

 

    2016     2015     2014  
                   
Accumulated depreciation and amortization   $ —     $ —     $ (516 )
Assets sold for tax, not yet recognized for book     685       685     —  
Allowance for loss     639       639       694  
Deferred tax asset     1,324       1,324       178  
Less valuation allowance     —       —       —  
Total deferred tax asset   $ 1,324     $ 1,324     $ 178  

 

For years prior to December 31, 2016, IOT had deferred tax assets of approximately $1.4 million and $0.2 million as of December 31, 2015 and 2014, respectively, on a stand-alone basis.

 

In 2015, the company used approximately $5.9 million of losses from the ARL consolidated group. In 2014, IOT used approximately $2.7 million of losses from the consolidated group. On a stand-alone basis, there is no NOL carryforward for IOT. However, the Federal Consolidated group for which IOT is a member has a NOL carryforward of approximately $144 million as of December 31, 2016, which is more than sufficient to absorb IOT’s taxable income for 2016. Of the $144 million of NOL carryforward, approximately $2.8 million of it is attributable to IOT under Federal Income tax allocation rules. The alternative minimum tax credit balance is approximately $0.3 million. The credit has no expiration date.